Smart No Credit Auto Loans

How to get the most out of your next car loan even if you have credit problems
Smart No Credit Auto Loans
Our experience

Even with the higher interest rates charged to consumers with car credit issues, there are still ways to reduce the interest expenses.

At Auto Credit Express we know this is possible because we’ve spent more than two decades helping credit-challenged car buyers find dealers that can arrange for auto loan approvals.

Since the bad credit car loan process poses higher risks (according to recent data from Experian, buyers financing their vehicles through subprime auto lenders are roughly twice as likely to have their cars repossessed), we thought we’d share something we’ve learned over the years.

Interest rates

Car buyers with poor credit usually can’t shop around and compare interest rates since nearly all high-risk lenders only work indirectly through franchised new car dealers. But regardless of the interest rate, there are a couple of ways you can reduce the interest charges you’ll pay.

The first is by decreasing the loan term and the second is by pre-paying the loan.

Reducing the term

While decreasing the loan term will increase the monthly payment, it can dramatically reduce interest expenses.

Here is an example:

If you finance a $15,000 vehicle at a 7% tax rate with non-taxable fees of $120 and a down payment of $2,000, the total amount to finance comes to $15,240.

Finance that amount for 60 months at an interest rate of 17% and the monthly payment should be about $379 per month. In this case the total interest paid over the loan term works out to be $7,485.

By reducing the loan term to 48 months, the monthly payment rises to $439 – but think of that as just $2 more per day.

But here comes the good news. The total interest paid drops to $5868 – a decrease of over $1600, which works out to almost $34 per month. Other benefits include reducing the time your vehicle is worth less than the payoff amount – which also means you can trade out of it earlier (when your credit scores should be higher to qualify for a lower interest rate).

Loan pre payment

Pre-paying the loan will have the same result. In other words, if you think you might not be able to afford the higher payment of a shorter term but, once you’ve taken out the loan you realize you can, all you have to do is begin paying the higher amount and the results will be the same.

An even better idea involves splitting the higher loan payment in two and paying half the amount (or more) earlier and the rest on the due date. This will result in even greater savings since all no credit auto loans are of the simple interest variety.

As we see it

When financing a car – especially one with a loan that carries a higher interest rate – financing it for the shortest term possible or pre paying the loan will save you money on interest expenses. By making timely payments, you should be able to trade out sooner while establishing your auto credit more quickly.

Another thing that’s good to know: if your credit is less than perfect, Auto Credit Express can help you find a dealer for your best chance at an auto loan approval.

If you’re ready to start the process, you can begin now by filling out our online car loans application.

Posted on August 15, 2012 by in Bad Credit
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